What is Social Security?

Social Security is a federal social insurance program established in 1935 under the Social Security Act, designed to provide financial security and retirement income to eligible workers and their families in the United States. Funded primarily through payroll taxes under the Federal Insurance Contributions Act (FICA) or the Self-Employment Contributions Act (SECA), the program distributes monthly cash benefits to three main groups: retired workers, disabled individuals who meet strict eligibility criteria, and the surviving spouses and children of deceased workers.

FICA payroll taxes are levied at a rate of 6.2% on both the employee and the employer, while self-employed individuals pay the full 12.4% rate. These taxes are assessed up to an annual maximum wage limit, known as the taxable wage base. For the 2026 tax year, the Social Security taxable wage base is $184,500 ($176,100 in 2025); earnings above this threshold are exempt from Social Security taxes and are not factored into future benefit calculations. To qualify for retirement benefits, workers must accumulate a minimum of 40 work credits throughout their career (equivalent to ten years of work). The monthly retirement payout, or Primary Insurance Amount (PIA), is calculated using a formula based on the worker's highest 35 years of inflation-indexed earnings.

Retirees can claim reduced Social Security benefits starting at age 62. Claiming early results in a permanent reduction of up to 30% depending on the birth year. Waiting until Full Retirement Age (FRA), which is 67 for anyone born in 1960 or later, entitles the retiree to 100% of their PIA. Delaying benefits beyond FRA triggers a delayed retirement credit, which increases the monthly benefit by 8% for each year delayed, up to age 70, where the benefit peaks at 124% of the PIA. Depending on a retiree's total provisional income, up to 50% or 85% of their monthly benefit may be subject to federal income taxation.